Blockchain technology has been at play for about ten years now. Since Bitcoin and the others were created, blockchain technology has only gotten better and smarter. In layman’s terms, blockchain technology is a network of integrated immutable records of data known as blocks. These blocks are then interconnected to create a chain of records accessible by everyone on the network. In a nutshell, the blockchain stores record of transactions. These include currency in play, the amount exchanged, recipient address, senders address, and the dates in question. A typical payment using blockchain can be described as follows:
– A user initiates a transaction.
– The transaction’s details are recorded and then verified.
– Upon confirmation, the details are then placed as a single dedicated block.
– The created block is then presented with a unique identifier and placed on the chain. Once on the chain, the record becomes permanent.
Traditionally, people make transactions using fiat currencies. No one could imagine the possibility of making payment using blockchain through digital assets. Today, the cryptocurrency industry has transformed how payments are made all over the world. In this article, we’ll examine whether payment using blockchain was a solution or a problem. Here are a few examples :
Instant payments and settlements
Before blockchain technology, banks were at the nerve center of financial transactions. They control the amount and the duration for the processing per transaction. But today with blockchain technology, cryptocurrency payments only take a few seconds to be completed. In instances where you had to wait up to 5 business days to receive your cash, this is a tremendous improvement. The long waiting time for transactions was eliminated.
When it comes to traditional payments, there are often several intermediaries between you and the recipient of the cash. Since the payment services industry is humongous, the operators dictate terms. This enables them to make billions every year in fees. For instance, the normal payment of goods or services using a credit card will require several parties in the middle. These include the financial institution, the payment gateway such as Stripe connect, the exchange facilitator, e.g. Visa, and the cardholder’s bank. With blockchain in play, the payer and payee can make direct peer to peer payments. No need for middlemen charging a fee for every transaction. Additionally, the system records every transaction without errors or delays.
When making a payment, security is one of the biggest considerations to make. If someone is unsure of the security of a payment system, they’ll not use it. Hackers have been able to hack into the banking system to steal money and records. This is often possible because of certain vulnerabilities inherent to the system. Using blockchain technology, you can be assured of better security because the transactions are much faster. Because of this hackers don’t have the time to confuse anyone or redirect funds. Also, blockchain ledgers are irrefutable since they cannot be edited once a transaction is completed.
Low transaction costs
As it is today, conventional banking and payments attract a certain fee paid by users. In conventional banking, it’s usually 1-3% of the total transaction. With digital payment systems such as Venmo and PayPal, they deduct a 2-3.4% commission on every transaction. Although the sum seems small at first, over time, it accrues to a significant amount. In a blockchain-based system, intermediaries are reduced, so are the fees involved. That significantly reduces the fees involved in any money transfer for the benefit of the user.
With traditional banking systems, everything is monitored and flows from one centralized point. But blockchain takes advantage of its decentralized nature to return the power to the asset’s owners. Since banks have a centralized structure, they control the number of deposits and withdrawals. For instance, some institutions require that you notify them before you remove your funds with them. But with blockchain, there is no supervision at play here. The owner of the cash can do as they please.
Most payment platforms require people to register using their government credentials before given access. After registration, every payment can then be tracked down as details on their system. This is contrary to payment using blockchain like Bitcoin. Your purchases remain discrete unless you publish the transactions. The technology is good for making sure that there are no traces of a transaction. The destination address for all Bitcoin transactions changes from transaction to transaction. This means that law enforcement cannot use a particular address to find payments.
Record keeping is crucial when it comes to payments. When records are accurate and timely, there is little or no chance that there will be mixups in the future. But due to human error, sometimes mistakes can have terrible consequences. Blockchain has its own way of keeping the records straight and unchanged. This makes it an accurate reference for records should someone want to verify the details of a particular transaction.